Invest Money into Superannuation or Mortgage?

Mortgage or super: if you have some spare cash, where should you put it? It was a question posed recently on my News Corp Gen Y column, and the truth is that there’s no right or wrong answer. Both strategies have tax benefits and both strategies have some disadvantages, so let’s look at each.

The case for putting more money into superannuation

Superannuation is a popular investment destination; something the SMSF statistics are testament to. The most recent ATO quarterly self-managed super fund statistical report (March 2015) shows that there are currently more than 550,000 SMSF funds in Australia, catering for more than one million members. With a population of just 17 million between the ages of 20 and 85, that’s pretty impressive.

So there is no doubt that many of us are happy to put money into superannuation – and to manage it ourselves.

Is an SMSF right for you?
Salary sacrificing money into superannuation has the benefit of a juicy tax concession; before-tax money that you tip into super is taxed at just fifteen percent (as opposed to whatever your marginal tax rate is – for most people it’s 34.5 percent, including Medicare levy). So already you’re ahead. Some examples, based on the current marginal tax rates plus Medicare levy, are below:

$1,000, after tax equates to…

Nil

$1,000

Super contribution tax

$850

19% MTR + Medicare

$810

32.5% MTR + Medicare

$655

37% MTR + Medicare

$610

45% MTR + Medicare

$530

An extra $85 per week into your superannuation fund for thirty years, at an earning rate of six percent, could give you an extra $370,000 at retirement.

The case for putting more money into your home loan

Buying a home is challenging and if you are in the early years of home ownership you may well be mortgaged up to the hilt.

If you do have a large mortgage then any extra money that you can tip into your home loan, especially while interest rates are low, can save you a huge amount of interest over the life of your loan.

Assuming you have an extra $100 before tax per week to allocate to either superannuation or your home loan. If your marginal tax rate was 32.5% plus Medicare levy, it would result in around $65 per week after tax, to allocate to your home loan. Currently on the canstar.com.au database, the average variable mortgage is 4.60% (you can compare home loan rates here). On a $300,000 home loan over 30 years, an extra $65 per week can pay your loan off eight years sooner and save around $79,000 in interest. It will also free up eight years of repayments (around $174,000) to invest, which you could then salary sacrifice and use to supercharge your super.

All up, the result would likely be similar.

Learn more about Super

If you are currently in the market for a super fund, or are considering switching, check out our comparison table below which offers a snapshot of the current market. Please note that this table has been sorted by our star rating (highest to lowest, A-Z) and is based on the policy holder being aged between 30 and 39, with a super balance of $55,000 to $100,000. You can try this tool for yourself here.

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Self Managed Super Funds (SMSF)

Superannuation products displayed above that are not 'Sponsored' are sorted as referenced in the introductory text to the table. Canstar may receive a fee for referral of leads from these products. See How We Get Paid for further information. Products displayed above do not include all products/providers and may not include all features relevant to you. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise.

Performance information shown is for historical periods up to 31/12/2018 and investment options noted in the product information. Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the maximum applicable ongoing management fees and membership fees. Performance information is provided by Rainmaker Information Pty Ltd ABN 86 095 610 996 AFSL 461816 (www.rainmaker.com.au) which provides general information on superannuation. Performance data may not be available for some products. This is indicated in the tables by a note referring the user to the product provider, or by no performance information being shown.

Any advice on this page is general and has not taken into account your objectives, financial situation or needs and is not a recommendation for your particular circumstances. Consider whether this advice is right for you. Consider the product disclosure statement before making a purchase decision. You may need financial advice from a qualified adviser.

Performance, fee and other information displayed in the table has been updated from time to time since the rating date and may not reflect the products as rated. The performance and fee information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

Investment returns of superannuation products: Canstar considers the annual investment returns of a product’s default investment option, including the default life-stage option where applicable. Where a product does not have a default investment option, annual returns for the investment option with the highest funds under management (FUM) and a 60-80% growth asset allocation are used.

Annual cost includes administration fees and indirect costs (including the investment fee, performance fee where applicable, and any other indirect management costs). This cost is calculated based on the super balance specified and the investment option considered in the 2018 Superannuation Star Ratings, which is the default investment option (including default life-stage options). Where a product does not have a default investment option, annual fees for the investment option with the highest FUM and a 60-80% growth asset allocation are used.

The Superannuation Star Ratings in this table were awarded in March 2018. View the Canstar Superannuation Star Ratings Methodology and Report. These results are general advice only and not personal financial advice. Ratings are only one factor to take into account when deciding whether to make an investment. Consider the Product Disclosure Statement before making a purchase decision.

Products marked as 'Sponsored' are paid advertisements and Canstar receives a fee for referring you to the advertiser. Canstar is not giving you financial advice in relation to Sponsored products.

Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise.

This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you. Consider the product disclosure statement before making a purchase decision. Canstar provides an information service. It is not a credit provider, and in giving you information about credit products Canstar is not making any suggestion or recommendation to you about a particular credit product. Statistics referenced on this page have been verified by Canstar Research. Research provided by Canstar Research AFSL and Australian Credit Licence No. 437917.